Lawful India births greatness
Reuters, April 27, 2006

Rio De Janeiro: The top emerging economies known as BRIC -- Brazil, Russia, India and China -- may surpass current world leaders in the next few decades if they do not let politics prevail over economic issues. 

Scholars at the Global Finance Conference in Rio de Janeiro on Wednesday warned that despite their vigorous growth, Russia and China were particularly vulnerable to losing direct foreign investment due to excessive government control and lack of clear rules for the private sector. 

“They are doing very well, but what you see (in Russia and China) is a pretty lawless economy. There are no rules or rules that are not applied," said Professor Yochanan Shachmurove of the University of Pennsylvania. "If they continue that way, they will not go very far," he said. "They will not see growth in direct foreign investment." 

Experts particularly cautioned against "economic nationalism," when governments seize or threaten to seize the assets of foreign firms in an effort to squeeze more cash out of them for the national economy. Some cited as examples Venezuela and Bolivia. 

"Historically, such political decisions cannot sustain themselves," said Professor Arvind Mahajan of Texas A&M University, adding that BRIC countries were unlikely to follow that path. 

In an interview, Mahajan said some forecasts showed that in purchasing power parity terms China alone could have a bigger gross domestic product than the world's biggest economy, the United States, by 2050, and India could catch up by then, too. 

In order to do so, he said, both countries have to make a step forward from being the developed world's manufacturing backyard and back office and produce technological innovations. 

Brazilian Professor Winston Fritsch of the graduate school of business at the Rio de Janeiro Federal University -- which hosted the conference -- pointed to the vast natural reserves of the BRIC countries as their main development engine. 
"These countries will surpass North Atlantic economies," he told the conference, without giving a time frame.

Fritsch, who also works for Rio Bravo Securities, expects Brazil to reach investment grade within two or three years if its current strict economic policies continue. 

In India's case, Standard & Poor's earlier this month said it could raise the Asian nation's sovereign credit rating to investment grade if public finances improved further. 

Investment grade on sovereign debt allows countries to borrow more cheaply and is an important step toward allowing a developing country to emerge as a developed economy. 

But Mahajan pointed out it was only one of many steps and said much more needed to be done in the four countries before any of them would be considered developed. 

Bureaucracy, which makes opening a business a much lengthier procedure than in developed countries, widespread corruption and regulatory uncertainty are still plaguing these countries, and doing business there is still difficult, he said. 
"Law and order, as applied to economy, is fundamental for growth," Mahajan said, saying that a reliable justice system, independent from government influence, was vital. 

Economists said the four countries were unlikely to form a bloc despite active bilateral contacts, such as between India and Brazil, and occasional unity on certain common issues, such as opposition to European Union trade tariffs. 

India's reluctance to join Russia and China in a political pact designed to offset U.S. influence is one of the problems, Mahajan said. "Also, the nature of Russian-Chinese relations is very different from those between Brazil and India, for example. A coalition would be difficult."